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Fabricators are fully charged as orders keep climbing

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Just look at the aging power infrastructure and mounting pressure to find alternative "eco-friendly" energy sources and it's not hard to see why utility tower demand is so strong that fabricators are struggling to keep pace.

Demand has been going through the roof for transmission towers in both the United States and Canada, according to Todd Shipway, director of sales and marketing at Locweld Inc., Candiac, Quebec, and that surge is expected to continue for at least the next 10 to 15 years.

Overall demand is so strong that it has already almost exceeded what tower fabricators can produce, Jeremy Moore, director of sales and marketing at FWT Inc., Fort Worth, Texas, said. "We are now just at the crest of a big boom."

Lead times have already extended out to 16 to 20 weeks vs. a more normal eight to 12 weeks, said David Ramsey, national sales manager for Rohn Products, Peoria, Ill., and all estimations are that it will only tighten further.

This is being facilitated by an increasing change of mindset on the part of utility regulators, Shipway said. "In the past it was difficult to get quick approvals; one project took over 16 years to be approved. Today, that can't happen. We can't wait that long, so there have been a number of efforts to accelerate the process in a reasonable way. It doesn't mean giving the utilities carte blanche, but there has been a lot more collaboration," he said.

Another factor driving the growth of utility towers is pressure to reduce dependency on conventional fossil fuel energy sources. "The United States will gravitate toward other sources, such as renewables (onshore and offshore wind, geothermal, biomass and solar), nuclear and 'clean air' coal. Many of these sources are located far from the demand centers, which necessitates transmission to deliver this energy from the source of generation to the consumer," said Shelby Pixley, chief executive officer of plate at ArcelorMittal USA Inc., Chicago. "It is clear that you cannot generate electricity—whether it is from a remote or local area—without having safe, reliable transmission systems that tie into the national power grid and a regulatory framework that recognizes this is of vital importance to our nation."

"We are seeing demand flying off of the charts in Texas," Moore said, attributing at least part of that to the tremendous growth of wind farms in the wind belt, which extends through the Midwest, including Texas, Oklahoma, Nebraska and Kansas.

Utility towers are being constructed all over the country, and not just to tie in alternative energy sources to the grid, according to Ramsey. "Much of it involves replacing existing, aging infrastructure where there have been some failures," he said.

Regardless of the reason for the demand surge, steel stands to reap the rewards, given that it is generally the material of choice for transmission towers. "We do not expect a surge of demand (for steel from the utility tower market) for the remainder of this year, but we are optimistic about sustainable growth in the future," Pixley said.

A spokeswoman for Dis-Tran Steel Fabricators LLC, Pineville, La., said that while she hasn't seen a big increase in demand for lattice transmission towers in the past year, demand for steel tapered tubular towers—often referred to as transmission poles—are up about 15 percent year on year.

While there are other alternatives, steel is "by far" used more than other materials for these utility poles, Moore said. Steel towers are lighter and can be galvanized, while concrete is heavier and more costly to ship and install, he said. In some cases, laminated wood systems also are used, "but they can't be as large and can't take as high loads as steel or concrete." All lattice towers are made of steel.

How much steel is used per tower? Gary Houghton, director of purchasing at Candiac, Quebec-based Locweld Inc., gave a rough estimate of about 10 to 15 tons, although he cautioned that no two towers are alike.

While the majority of towers tend to be somewhere between 70 and 185 feet tall, some rise as much as 450 feet and vary in width, depending on the voltage requirements and locations, Shipway said.

So the utility tower market is booming, but how will volatile steel and raw material prices, combined with the financial crisis, impact the market?

If the financial crisis does have an impact, it won't be immediate as "most of the dollars have already been allocated for current projects. If the financial crisis has an effect it will be in the first quarter of next year or beyond," Ramsey said.

The raw material price volatility, especially for steel and zinc, has had a big impact on fabricators and might have caused utilities to cut back or delay some transmission projects, particularly when coupled with siting cost increases, Moore said.

However, Dis-Tran questions whether it has been a limiting factor, given that the company is expecting to see an increase in transmission projects despite an 80- to 120-percent increase in some raw material prices.

"We are not seeing any delays or cancellations due to raw material prices," Pixley said. "If a project located far from the demand center is going to be constructed, then the supporting infrastructure of the transmission towers must be built. Of course, one project owner might have a greater tolerance for risk than another."

There is no question, however, that the rising costs have made it more difficult for fabricators to quote prices for their towers. "Up to last year I could have given a firm price," Houghton said. "But we can't do that now. No one knows where the prices will go in the future."

Another fabricator agreed, noting that he frequently has to absorb cost increases when raw material price hikes are announced after contracts have already been signed. "Sometimes we have raw material escalator clauses in our contracts, but most times we have to eat the cost increases," he said.

Overall the future looks bright, especially given the need for energy infrastructure development, Pixley said. "We are confident the utility tower market will continue to be a sustainable sector for the steel industry," he said, "but the uncertainty created by the current financial crisis must pass first." MYRA PINKHAM

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